The resale price maintenance regulation in the EU and
China
European Competition Law and Regulation (LLM)
Name: Jiao Zhou
Supervisor: Dr. Daniela Obradovic
Abstract
Even though “resale price maintenance” (RPM) is under regulation both in the EU and China, these two legal systems have adopted different legal approaches towards these agreements. Due to those divergences, the multi-national corporations between the two legal systems will encounter uncertainty and risks, thus having detrimental effect on the economic cooperation between the EU and China.
The research is conducted on the basis of comparative research method and the normative analysis of the RPM practice in the EU and China. The aim of this thesis is to propose suggestions to resolve the discrepancies regarding the RPM test rules between these two systems.
This thesis mainly discusses three research questions: (i) what are the similarities and differences in the application of the RPM test in China and the EU; (2) what are the reasons underlying the similarities and differences regarding the RPM test rules; and (3) what are the suggestions for resolving the divergence in the EU and China.
This thesis proposes seven suggestions for eliminating these divergences: (i) the Chinese authorities should assess the pro-competitive effects of RPM agreements; (ii) the Chinese authorities and national courts should adopt the ‘indispensability requirement’ under the justification assessment; (iii) the Chinese authorities and courts should adopt a narrow interpretation of ‘public interest’ and the ‘socialist market economy’; (iv) The Chinese authorities and national courts should make effort to enhance the transparency and consistency in the application of competition rules; (v) the EU should overcome the rigidity of the negative presumption of RPM agreements and adopt a more effects-based approach towards the RPM agreements; (vi) the NCAs and Commission should examine the consumers’ opinion about the benefits which are introduced by RPM agreements; (vii) it is necessary to broaden the concept of ‘benefits’ under Article 101(3) TFEU to include public policy considerations and non-economic
factors as grounds for the justification of RPM agreements.
Table of Contents
1. Introduction: theoretical and hypothetical framework ... 1
2. The legal test rules regarding the RPM agreement in the EU and China ... 5
2.1 The legal test rules regarding the RPM agreement in the EU ... 5
2.2 The legal test rules concerning the RPM agreements in Chinese anti-monopoly law ... 8
2.2.1 The legal test rules regarding the RPM agreement of the Chinese authorities ...8
2.2.2 The legal test rules regarding the RPM agreement of Chinese national court ... 11
2.3 Interim conclusion ... 13
3.The critical analysis of the similarities and differences of the legal rules regarding the RPM agreements in the EU and China ... 13
3.1 The similarities of the legal approach concerning the RPM regulation in the EU and China ... 13
3.1.1 The EU and China both consider restriction on competition as the prerequisite for the regulation of the RPM agreements ...14
3.1.2 The EU and Chinese courts are both open to assess the pro-competitive effect of the RPM agreement ...15
3.2 The differences in the legal approach of the EU and China in the RPM regulation ... 17
3.2.1 The Chinese authority did not assess the pro-competitive effects of the RPM agreement in their decisions ...17
3.2.2 The negative presumption of the RPM agreements under the EU competition law ...18
3.2.3 The absent of ‘indispensability’ requirement in the justification conditions of Chinese anti-monopoly law ...21
3.2.4 The role of non-economic factors in the process of justification of RPM agreements under EU and Chinese law ...22
3.3 Interim conclusion ... 24
4. The reasons for the existence of the similarities and differences in the application of the RPM test rules in the EU and China ... 25
4.1 The reasons for the existence of the similarities in the application of the RPM test rules in the EU and China ... 25
4.2 The reasons for the differences in the application of the RPM test rules in the EU and China ... 26
4.2.1 The reasons for disregard of pro-competitive effects of RPM agreements by Chinese authorities ...26
4.2.2 The reasons for the difference in the analysis of the concept of ‘restriction on competition’ between the EU and China ...27 4.2.3 The reason for the difference in the criteria for justification of RPM agreements between the EU
and China ...28
4.2.4 The reasons for the difference concerning the scope of justification of RPM agreements between the EU and China ...28
4.3 Interim conclusion ... 30
5. Suggestions for eliminating differences regarding the application of the RPM test rules in the EU and China ... 30
5.1 Suggestions for the reconstruction of the RPM test in China ... 31
5.1.1 The necessity to assess the pro-competitive effects of RPM agreements ...31
5.1.2 The need for the adoption of the ‘indispensability requirement’ by the Chinese authorities and national courts ...31
5.1.3 The need for the narrow interpretation of ‘public interest’ and the ‘socialist market economy’ ....32
5.1.4 The enhancement of the transparency and consistency in the application of competition rules ..33
5.2 Suggestions for the reconstruction of the RPM test in the EU ... 34
5.2.1 The need to overcome rigidity of the negative presumption of RPM agreements under the EU competition law ...34
5.2.2 The need to introduce the examination of consumers’ opinion about the benefits which can be brought about by RPM agreements ...35
5.2.3 The need to introduce public policy considerations and non-economic factors as grounds for the justification of RPM agreements ...36
5.3 Interim conclusion ... 36
6. Conclusion ... 37
1. Introduction: theoretical and hypothetical framework
“Resale price maintenance” (RPM) is a vertical restraint of competition. It usually occurs between a manufacturer and its distributors or retailers in which the manufacturer sets the minimum or fixed price according to which the products could be resold. As this kind of practice could cause direct price increase and other anti-competitive effect on the market, it is condemned by many countries’ legal system.
There is difference in applying of the RPM test in the EU and China. EU competition law adopts a strict approach toward RPM. Where an agreement includes RPM, it is presumed to have as its object the restriction of competition and, thus, it is prohibited by Article 101(1) TFEU1. However, such an agreement can be justified under Article 101(3) TFEU. If the defendant pleas an efficiency defense in an individual case, the court will then balance the anti- and pro-competitive effect of the RPM agreement under Article 101(3) TFEU.2
The situation regarding the prohibition of the RPM agreements is very different in China. There is the discrepancy in the application of the RPM test by the enforcement authorities and national courts. In most cases, the enforcement authorities treat RPM as, per se, illegal and do not further examine whether the RPM agreement could bring about pro-competitive effect. National courts of China adopt a different approach toward the RPM from the one stipulated by the enforcement authorities. Contrary to the EU competition law which presumes that the RPM has the object of restriction on competition, the Chinese courts try to establish whether the RPM could have anti-competitive effect depending on the specific circumstances in individual cases. They also take the pro-competitive effect of the RPM agreement into consideration.
1 Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty
on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 102, 23.4.2010, pp. 1–7, para 223
This difference in the treatment of the RPM test in the EU and China causes much uncertainty for the companies which are commercially active both in the EU and China. They are confused about the acceptance of the RPM practice in the EU and China. They also run the risk of being prosecuted for the particular RPM practices that they perceive as being lawful in a particular jurisdiction.
This situation is inevitably detrimental for the economic cooperation between the EU and China. The elimination of this divergence is essential for the creation of a level playing field in both jurisdictions. The EU’s experience concerning the RPM regulation could function as a source for resolving such discrepancies. Both parties, the EU and China, are interested in the elimination of this difference. The EU has provided technical assistance to China on competition regulation since 2004, through the Competition Dialogue established by the European Commission Directorates-General(DG) Competition.3 Such close cooperation is beneficial for the improvement
of market efficiency and trade liberalization, which are the common goals of the EU’s and Chinese competition policy4. Commissioner Vestager, in her meetings with the Chinese counterparts in March 2016, has declared the following: “The meetings confirmed our shared interest in strengthening our cooperation on competition matters... I believe the European experience of building our open single market and our history of restructuring and liberalizing a number of sectors contains useful ideas in this respect.”5
3 EC, Terms of Reference for EU–China Competition Dialogue (6 May, 2004),
<http://ec.europa.eu/competition/international/ bilateral/cn2b_en.pdf.> accessed 21 February 2017
4 Article 1 of Chinese Antimonopoly Law (promulgated by the Standing Comm. Nat'l People's Cong., Aug. 30,
2007, effective Aug. 1,2008) 2007, available at http://english.peopledaily.com.cn/90001/90776/
90785/6466798.html. Article 1 of the Chinese Anti-Monopoly law provides that ‘this law is enacted for the purposes of preventing and prohibiting monopoly conduct, safeguarding fair market competition, improving efficiency of economic operations, protecting consumers and the public interest, and promoting the healthy development of the socialist market economy’; Article 3(3) TEU provides that ‘The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.’
5 EC, ‘Commissioner Vestager meets Chinese counterparts in Beijing to discuss competition policy and economic
reform’(17 March 2016)<http://ec.europa.eu/competition/international/news_archive.html>, accessed 21 February 2017
This paper examines the possibilities for the elimination of the difference in the application of the RPM test in China and the EU. It assesses the similarities and differences in the application of the RPM test in China and the EU. This comparison will include the analysis of the anti-competitive object or effect concerning the RPM practice and the conditions under which the RPM agreement could be justified in the EU and China.
The first hypothesize of this paper is that the legal standard concerning RPM regulation by the Chinese enforcement authorities is more rigid than that applied in EU. This is because the enforcement authorities of China treat the RPM as, per se, illegal, without assessing the pro-competitive effect of the RPM practice. The second hypothesize of this paper is thatChinese courts’ RPM test is very similar to that of the EU. The Chinese courts judge the compatibility of a RPM agreement on the basis of four critical elements. These elements includewhether there is sufficient competition on the relevant market, whether the undertaking concerned has strong market power, what is the undertaking’s motivation for conclusion of the RPM agreements and the balancing of the pro- and anti-competitive effect of a specific RPM agreement6. The latest element is also relied upon by the EU authorities when examining the compatibility of a specific RPM practice with EU law.
The research is going to be conducted on the basis of comparative research method and the normative analysis of the RPM practice in the EU and China. Firstly, it is necessary to identify the parameters for the aforementioned comparison. These parameters include the factors determining the restriction of competition and the scope and conditions of the ‘legal exceptions’ under which the RPM practice could be justified. We shall begin with the identification of these parameters in the RPM test rules of the
6 The judgement of the High Court of Shanghai, Ruibang v. Johnson&Johnson, No.63,1 Aug 2013, <
http://wenshu.court.gov.cn/content/content?DocID=effe7905-b647-11e3-84e9-5cf3fc0c2c18&KeyWord=垄断|锐 邦>, accessed in 23 March 2017.
EU and China with the aim to clarify the general legal standard and key economic elements that the EU and Chinese enforcement authorities and courts take into consideration. The established framework of the parameters for assessing the application of the RPM test in the EU and China will serve as a research tool for the analysis of the similarities and differences between those two legal systems. This paper will then try to establish the reasons for the existence of the similarities and differences between the Chinese and the EU’s approach. It is worthwhile to note that competition policy cannot be pursued in isolation, as an end in itself, without reference to the legal, economic, political, and social context.7 Thus, the comparison analysis undertaken by this research is also to embrace the assessment of the legal, social and economic contexts in which two of those systems are established. Similar to the EU competition law, Chinese anti-monopoly law also aims at establishing and constructing of the free market. However, China has placed greater emphasis on the full function of the ‘socialist market economy’, which focuses on the rules of fair competition and serves societal needs.8 The protection of a competitive market structure9 and the freedom of
individuals to conduct business10 is firmly rooted in the EU. In China, however, the
competition process and associated values appear less well embedded. In some circumstances, the Chinese authorities appear more concerned with seeking consent from the public, than with economics.11 The divergence in the RPM test rules might reflect that difference in the goals of the EU and Chinese competition policy. After completing the comparative analysis of the EU’s and Chinese RPM application test, this paper will evaluate whether those rules could function in conformity with the
7 Commission (EC), XXIInd Report on Competition Policy, (1992) 13
8 Wang Xiaoye, The Prospect of Anti-Monopoly Legislation in China, 1 WASH. U. GLOBAL STUD. L. REV. 201
(2002)
9 Case C-8/08 T-Mobile Netherlands BV, KPN Mobile NV, Orange Nederland NV and Vodafone Libertel NV v
Raad van bestuur van de Nederlandse Mededingingsautoriteit[2009] ECR I-4529,para 38.
“Article 81 EC [now Article 101 TFEU], like the other competition rules of the Treaty, is designed to protect not only the immediate interests of individual competitors or consumers but also to protect the structure of the market and thus competition as such.”
10 Charter of fundamental rights of the European Union (2000/C 364/01), Article 16-freedom to conduct a
business, “The freedom to conduct a business in accordance with Community law and national laws and practices is recognized.”
11 David J. Gerber, Constructing Competition Law in China: The Potential Value of European and U.S.
criteria of promoting the consumer welfare and maintaining good competition environment. The last part of the thesis is intended to present some recommendations for resolving the inconsistent approaches in China, and consequently eliminating the discrepancies between the EU’s and Chinese legal approaches to RPM.
The thesis is structured in the following manner, the first part of this article briefly elaborates the RPM regulation under the EU competition law and Chinese anti-monopoly law. It focuses on the reasons why the EU competition law adopts a general negative presumption that the RPM has the object to restrict trade and explaining under which conditions the RPM could be justified under Article 101(3) TFEU. In addition, it looks into the most important decisions and cases published by the enforcement authorities and the national courts in China in order to establish the parameters of the RPM test and the economic factors that have been examined during the assessment of the anti- and pro-competitive effects of RPM. On the basis of the analysis of the legal rules in the EU and China, the second part of this thesis will compare the similarities and differences between those two legal approaches. The third part will find out the reasons underlying the aforementioned similarities and differences within the context of social, economic, political background. The concluding part is intended to present recommendations for eliminating the discrepancies between the EU’s and Chinese legal approach to RPM.
2 The legal test rules regarding the RPM agreement in the EU and China
2.1 The legal test rules regarding the RPM agreement in the EU.
The most important provision regarding to the RPM regulation under EU competition law is Article 101 TFEU. The main aim of Article 101 TFEU is to foster economic integration in the European Union by ensuring that competition is not distorted12.
12 George P. Kyprianides, should resale price maintenance be per se illegal?, European Competition Law Review
Article 101(1) TFEU prohibits “all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market”. If the RPM agreement may have an appreciable effect13 on trade between Member States, then it falls within the scope of Article 101 TFEU.
The RPM agreement is subjected to a stringent treatment under Article 101 TFEU. Where an agreement includes RPM, it is presumed to have as its object the restriction of competition and, thus, it is prohibited by Article 101(1) TFEU14. The RPM agreements are treated as hardcore restrictions because of the view of the Commission that RPM implies a high potential for negative effects on competition and because it is unlikely to ensure efficiencies for consumers15. The most common negative effects of the RPM agreements include:
(1) a price increase at the distribution level. This is the most direct and immediate effect of a RPM agreement, because this practice will prevent the distributors to lower their price for that particular band16;
(2) the facilitation of a manufacturer cartel. In the application of the RPM agreement, the price transparency would be enhanced and, thus, making it easier for the manufacturers to reach a census on the cartel price. Furthermore, the RPM agreement could also be used as a tool to detect whether the member of the cartel deviates from the collusive equilibrium by cutting its price17;
(3) the facilitation of a horizontal cartel at distribution level. Through RPM the manufacturer becomes the retail-cartel enforcer, ensuring that no retailer deviates from the cartel price. Established multi-product and/or multi-brand dealers can be in a strong
13 Case C-226/11 Expedia Inc, EU:C:2012:795, [2013] 4 CMLR 439, paras 36-37.
14 Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty
on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 102, 23.4.2010, pp. 1–7, para 223. Commission Decision in Case COM.F.1/35.918 JCB, OJ 2002 L069/1, paras 168-173 and paras 197-200.
15 Jonathan Faull, Ali Nikpay: The EU law of competition (3rd edn, Oxford, 2014) 1392 16 See note 13, para 224
position to put pressure on a manufacture which may fear retaliation in various forms18. More practically, the coordinating distributors may share the cartel rents with the manufacturers through, for example, a higher wholesale price19; and
(4) the foreclosure effect which prevents the other manufactures to entry into the relevant market. The powerful manufacturers may utilize the RPM agreements to afford its distributors considerable margin to entice the latter to favor the particular brand over rival brands.20
However, an agreement that falls within Article 101(1) TFEU is not necessarily unlawful. Article 101(3) TFEU provides a ‘legal exception’ to the prohibition in Article 101(1) TFEU. The justification behind this article is that although some agreements may have anti-competitive implications, they can also contain aims that are valuable and so are worth pursuing. This would mean they are compatible with the objectives of the European Union21. If the undertaking concerned intends to invoke Article 101(3) TFEU, it has to plea an efficiency defence in an individual case22 and put forward
‘convincing arguments and evidence’ to establish that the conditions of Article 101(3) TFEU are satisfied23. Then the authorities or the courts will balance the anti- and pro-competitive effect of the agreement and decide whether the conditions of that provision are fulfilled.
With regard to the RPM agreements, they not only cause negative effect on competition, but also could bring about certain efficiencies on the market. The most significant efficiency is that the RPM agreement could help the new products or new brands to entry into the market. Because the RPM agreement enables the manufacturers to provide enough margins to their distributors, this kind of practice will induce the
18 Eric Gippini-Fournier, Resale Price Maintenance in the EU: In Statu Quo Ante Bellum?, 36th Annual
Conference on International Antitrust Law and Policy, 2009 (B. Hawk ed., 2010)
19 I. Paldor, Rethinking RPM: Did the Courts Have it Right All Along? (2007), unpublished SJD thesis,
(available at http://ssrn.com/abstract=994750; hereafter, Paldor, Rethinking RPM), at 92-93
20 Ibid.
21 Article 3 TFEU. 22 See note 13.
distributors to better take into account the manufacturers’ interest to promote the products and to expand demand, especially during the introductory period24. The second efficiency is that the RPM agreement is able to prevent free-riding at distribution level. Free-riding happens when the consumers experience the pre-sale service in the high-price retailers but then purchase the products at a lower price from other retailers that do not offer such service. If enough customers free-ride such service, then the retailers will lack the incentive to maintain the pre-sale service which could be very important for certain complex or luxury products. The RPM agreement may be helpful to resolve such free-riding problem by establishing the uniform retail price for all its distributors.
2.2 The legal test rules concerning the RPM agreements in Chinese anti-monopoly law
In China, both national enforcement authorities and courts are empowered to assess the compatibility of the RPM agreements with the Chinese anti-monopoly law. Each of those institutions applies its own criteria for the purpose of afore mentioned assessment. The approach towards the assessing the lawfulness of the RPM agreements differs considerably in two of those institutions. While Chinese authorities adopt quite stringent and rigid approach towards the lawfulness of those agreements, the approach of Chinese courts is measured with balance and open to the assessment of the pro-competitive values of those agreements.
2.2.1 The legal test rules regarding the RPM agreement of the Chinese authorities.
The Chinese authorities have been focusing on the regulation of RPM agreements since 2013. They have published a series of decisions concerning the conduct of undertakings which are active at the markets for cars, contact lenses, white spirit, milk powder, household appliances and medical products.
The relevant legislative provisions regarding the regulation of the RPM agreements in China are Article 14 and Article 15 of the anti-monopoly law of China(AML)25. Article 14 AML explicitly stipulates that the monopoly agreements that fix the resale price or restrict the minimum price for resale to a third party are prohibited. Similar to the EU competition law, the anti-monopoly law of China, considers the object or effect of restriction on competition as the precondition for the assessment of legality of a RPM agreement26. However, contrary to the EU competition law, the anti-monopoly law of China does not presume that the RPM agreement has the object of restriction on competition. The Chinese authorities are required to find enough evidence in order to prove that the RPM practice has anti-competitive effect on the market.
The Chinese authorities mainly focus on the following aspect of such negative effect: (1) the deprivation of the distributors’ freedom to set the price for their products; (2) the prevention of the consumers to benefit from the lower price; (3) the elimination of the competition of the distributors within one particular brand; and (4) the elimination of the competition between different brands. The first three aspects are usually reasonably well elaborated in the Chinese authorities’ decisions, but the last one, namely the effect on inter-brand competition, lacks a convincing reasoning in most cases. The authorities’ analysis of the inter-brand competition effect of the RPM agreements mainly base on two points. This first point is that the RPM agreements could bring about price leadership among different competitors at the relevant market. If the powerful leading undertaking adopts an RPM agreement, the other competitors will follow this pattern by adopting such agreement as well. This practice would reduce the incentive of the undertakings from different brands to lower the price. The second point is that the RPM agreement which prevent the price competition within one
25 Anti-monopoly law of China, < http://www.npc.gov.cn/englishnpc/Law/2009-02/20/content_1471587.htm>,
accessed in 23 March 2017.
26 Article 101(1) TFEU: “The following shall be prohibited as incompatible with the internal market: all
agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market……” Article 13 AML: “ ‘monopoly agreement’ in this law refers to agreements, decisions, or other concerted conducts that eliminate and/or restrict competition.”
particular brand will further undermine the competition condition of the relevant market. It is particularly problematic when there is already no sufficient inter-brands competition on the relevant market and the options of the consumers are limited. This situation usually happens in the Chinese medical product market.
The RPM agreements which are prohibited under Article 14 AML are not necessarily illegal. Article 15 AML, on the other hand, offers the possibilities of exemption from the application of Article 14 in the situations where undertakings could prove that the RPM agreement is entered into for the legitimate objectives and fulfills all the conditions of this provision. The function of Article 15 AML is similar to that of Article 101(3) TFEU. The undertaking concerned could plea a defence under Article 15 AML on a case-by-case basis. The authorities and courts of China should examine whether the conditions of this provision could be fulfilled by the particular RPM agreement. The undertaking which wishes to invoke Article 15 AML has to prove that the RPM agreement meets three cumulative requirements: first, the RPM must bring about efficiency which is not necessary confined to the enumerated list of Article 15 AML; second, the efficiency generated by the RPM agreement must pass on to the consumers; third, the agreement must not substantially restrict competition on the relevant market.
However, in the cases published by the Chinese authorities, the undertakings concerned did not plea any efficiency defence under Article 15 AML. The authorities of China tend to ignore the possible efficiencies that the RPM practice could brought about and, thus, pay little attention to the function of Article 15 AML. Only in one decision adopted in 2016, the Chinese authorities explicitly referred to Article 15 AML and claimed that the undertaking made no efficiency defence under this provision27. In most
cases, once the authorities established the existence of the anti-competitive effect on the relevant market of an RPM agreement, the agreement would be prohibited and there was no further consideration about the application of Article 15 AML.
27 Written decision of administrative penalty of the National Development and Reform Commission, No. 8 (2016),
2.2.2 The legal test rules regarding the RPM agreement of Chinese national courts
Contrary to the Chinese enforcement authorities, national courts of China are willing to assess the pro-competitive effect of the RPM agreements. The test for assessing the pro-competitive effect of the RPM agreements by national courts is established in the Johnson&Johnson Co. case. This case concerns a private litigation between the Johnson&Johnson Co. and one of its distributors, Ruibang Inc.28. The plaintiff, Ruibang Inc., has been selling the medical products of Johnson&Johnson Co. in China for almost 15 years. According to their agreement, Ruibang Inc. could not sale the Johnson’s products below the price fixed by the Johnson&Johnson. In 2008, Ruibang Inc. won the tender in Beijing by offering a price lower than the required minimum price by the Johnson&Johnson. After the Johnson&Johnson Co. found out this deviation, it carried out a series of retaliation measures which include the refusal to supply any products to Ruibang and the cancelation the Ruibang’s dealership. Then the Ruibang Inc. filed a suit against the Johnson&Johnson Co., arguing that the RPM agreement between the two parties violates Article 14 AML and, thus, should be prohibited.
The court of the first instance rebutted the plead of the plaintiff on the grounds that Ruibang Inc. had not submitted enough evidence to prove the existence of the anti-competitive effect at the relevant market. The court of appeal reversed the judgement of the lower court and held that the RPM agreement concerned amounts to an illegal monopoly agreement and should be prohibited under Article 14 AML. The court of appeal has relied on four elements when it established the existence of the monopoly agreement under Article 14 AML: (1) whether there is sufficient competition on the relevant market; (2) whether the undertaking concerned has strong market power; (3) what is the undertaking’s motivation for the conclusion of the RPM agreement; and (4) the balancing of the pro- and anti-competitive effect of the RPM agreement. Once the
court concludes that the RPM agreement constitutes a monopoly agreement under Article 14 AML, then the RPM agreement becomes illegal under the Chinese anti-monopoly law.
The court considers the first and second elements as the prerequisites for the identification of a monopoly agreement. Only when there is no sufficient inter-brands competition on the relevant market, it is necessary to further examine the negative effect of the RPM agreement at issue. With the sufficient inter-brands competition on the relevant market, the consumers will be able to choose the other substitutable products without being hurt by the high price brought about by the RPM agreement. In addition, the court maintained that if the undertaking conducting the RPM agreement did not have advantage concerning the market share, raw material supply, key technique, distribute channel or brand image, then it would not have the power to have effect on the competition at the relevant market. Even if the negative effect existed, such effect would be temporary and could be spontaneously corrected by the market. The court did not define the function of the third element and simply pointed out that the overall strategy of the RPM agreement was to maintain high prices. The court concluded that the subjective intention of the undertaking to entry into the RPM agreement was to avoid price competition. The court considered the forth element as the key criteria for determining the illegality of the particular RPM agreement. If the pro-competitive effect of the RPM agreement overrides its negative effect, then such RPM agreement is not treated as the monopoly agreement and should be permitted.
The court has examined the possible efficiencies that could be brought about by the RPM agreements and establishes that the balance between the pro- and anti-competitive effects of an RPM agreement constitutes the standard criterion for assessing such agreements. The Chinese authorities, on the contrary, do not take the pro-competitive effect of the RPM agreement into consideration in most cases and treat the existence of negative effect of the RPM agreement on competition as the inherent feature of such agreements. It is worthwhile to notice that Chinese national courts have adopted a
different approach from the authorities regarding the RPM agreement. However, national courts still do not rely on Article 15 AML in order to undertake the balance between the anti- and pro-competitive effects of the RPM agreement. This shows that courts in China do not fully understand the function of Article 15 AML.
2.3 Interim conclusion
In conclusion, the EU has a stringent attitude towards the RPM agreements as its test rules is based on the double negative presumptions. The RPM agreements are presumed to restrict competition by object and they are unlikely to fulfill the justification conditions under Article 101(3) TFEU. However, the Chinese authorities and national courts have adopted a different approach towards the RPM agreements. The Chinese authorities are stricter towards the RPM agreement than that of EU, because they rarely assess the possible efficiencies that RPM agreements could bring about. On the contrary, the national courts of China are willing to recognize the possibility that RPM agreements could be economically beneficial under certain circumstances. The test rules regarding the RPM agreements adopted by the Chinese courts are more similar with that of the EU.
3. The critical analysis of the similarities and differences of the legal rules regarding the RPM agreements in the EU and China
Both the EU and China law establish that the RPM agreements have great potential to restrict competition on the relevant markets and they both consider the object or effect of restriction on competition as the precondition for determining the legality of the RPM agreements. However, there are also significant differences regarding the RPM test rules under these two legal systems.
3.1 The similarities of the legal approach concerning the RPM regulation in the EU and China.
3.1.1 The EU and China both consider restriction on competition as the prerequisite for the regulation of the RPM agreements.
The policy of Article 101 TFEU is to prohibit collusion between undertakings which have as their object or effect the prevention, restriction or distortion competition. The Court of Justice of the European Union (CJEU) has stressed that Article 101 TFEU aims to protect not only the interests of competitors or of consumers, but also the structure of the market and, in so doing, ‘competition as such’29. Because of this, restriction on competition is a prerequisite for the regulation of anti-competitive agreements including RPM under Article 101 TFEU. Furthermore, the EU courts have made clear that the Commission must adequately demonstrate that an agreement is restrictive of competition, and that they will not simply ‘rubber-stamp’ its analysis30. In the case of European Night Services v Commission31, the General Court exposed the inadequacy of the Commission’s reasoning32. Regarding to the RPM agreements, these
agreements are presumed to restrict competition by object, thus, directly prohibited under Article 101(1) TFEU.
According to Article 13 of the anti-monopoly law of China (AML), ‘monopoly agreement’ refers to agreements, decisions, or other concerted conducts that eliminate and/or restrict competition33. Article 14 AML explicitly provides that the monopoly agreements that fix the resale price or restrict the minimum price for resale to a third party are prohibited34. At the first sight, it could be argued that RPM agreements are per se illegal under the AML. However, the court in the Johnson&Johnson case overturned this opinion by explicitly stating that the plaintiff who claimed that an RPM agreement should be prohibited under Article 13 and 14 must prove that such agreement
29 Case C-8/08 T-Mobile Netherlands [2009] ECR I-9291, para 38.
30 Richard Whish, David Bailey, Competition law, the eighth edition, Oxford University Press 2015, page 122. 31 European Night Services Ltd OJ [1994] L 259/20.
32 See note 30.
33 Anti-monopoly law of China, < http://www.npc.gov.cn/englishnpc/Law/2009-02/20/content_1471587.htm>,
accessed in 23 March 2017.
had the anti-competitive effect on the market35.
We can conclude that both in the EU and China, RPM agreements between undertakings are prohibited only if they restrict competition, thus, if they are capable of damaging the economic benefits and consumer welfare. Restriction on competition is the prerequisite for the regulation of the RPM agreements both in the EU and China.
3.1.2 The EU and Chinese courts are both open to assess the pro-competitive effect of the RPM agreement.
According to the EU competition law, it is generally accepted that the RPM agreements could also bring about efficiencies that may outweigh the negative effects on competition. In the case of Binon, the CJEU confirmed the possibility that the RPM agreements could be exempted by stating that if, in so far as the distribution of newspapers and periodicals is concerned, the fixing of the retail price by publishers constitutes the sole means of supporting the financial burden resulting from the taking back of unsold copies and if the latter practice constitutes the sole method by which a wide selection of newspapers and periodicals can be made available to readers, the Commission must take account of those factors when examining an agreement for the purposes of Article 81(3)36.
There are, in principle, three main types of pro-competitive elements which could be generated by RPM agreements. First of all, pro-competitive theories of RPM rely essentially on the substitution of price competition for non-price competition in aspects assumed to expand demand37. The extra margin profit that RPM provides may allow
distributors to offer supplementary services that enhance the value of the manufacturer’s product, such as the scope of products they offer, the level of inventory,
35 See note 6.
36 Case 234/83, Binon, [1985] ECR 2015, para. 46.
37 L. Peeperkorn, Resale Price Maintenance and its Alleged Efficiencies, [2008] 4 European Competition Journal
the level of associated services (such as pre-sales advice, fitting rooms), and the geographic proximity of the retail outlet to the consumer38. Secondly, the RPM agreements could be used to introduce a new product by encouraging the distributors to invest in the promotion and expand the products’ total demand. This will lead to the increase of the product option which is definitely beneficial for the consumers. Thirdly, the RPM agreement could prevent the free-riding in the distribution level. As aforementioned, certain distributors may make efforts to improve promotion or the pre-sales service. However, many consumers who experience such service may choose to purchase the products at a lower price from the other distributors who do not offer such service. Then the RPM agreement could be utilized to solve this free-ride problem because when prices are fixed, no purchaser is able to obtain the information consumers want from one seller and then purchase from another at a lower price. Each seller of the brand, therefore, is free to provide the optimal amount of selling effort without fear of a free rider39.
Similarly, the Chinese courts also take the pro-competitive effect of the RPM agreements into consideration when examining the legality of the particular RPM agreement. In the judgement of Johnson&Johnson40, the Court held that the medical products concerned are closely connected to the consumers’ health and life safety. There is the possibility that RPM provides enough margins for the distributors to give the consumers pre-sales and after-sales service, thus protecting the brand reputation and ensuring the product safety. However, such situation was not found to exist in the case at hand, because it is the Johnson&Johnson, the manufacturer itself, who offered the supplement service such as, training of surgeons of the contracting hospitals. The court further explained that the RPM agreement could also be used to solve the free-ride problem or to help the new products/brands to penetrate the market. These two efficiencies could not occur in the case at hand either. In fact, each distributor of
38 OECD, Roundtable on resale price maintenance, DAF/COMP (2008)37.
39 Paradox: A Policy at War with Itself (Basic Books, 1978), reprinted with a new Introduction and Epilogue,
1993, p.449.
Johnson&Johnson was selected by this manufacturer. Moreover, Johnson&Johnson also concluded exclusive distribution contracts with its distributors. Because of that, there was no possibilities in this case that other distributors will free-ride extra services. Besides, the medical products concerned had been in the relevant market for almost 15 years and Johnson&Johnson had already built up its brand reputation. Therefore, there was no new product or brand to penetrate the market.
It could be concluded that both the EU and Chinese courts recognize that the RPM agreement could generate efficiencies under certain circumstances. Because of that, both legal systems take into consideration of pro-competitive effects brought by RPM agreements when determine whether the particular RPM agreement is legal or not.
3.2 The differences in the legal approach of the EU and China in the RPM regulation
3.2.1 The Chinese authority did not assess the pro-competitive effects of the RPM agreement in their decisions.
Contrary to the legal approach concerning RPM agreements adopted by the EU and Chinese courts, the Chinese authorities do not assess the pro-competitive effects of RPM agreements.
According to the decisions regarding the RPM agreement, the Chinese authorities have adopted a more stringent approach than that of the EU. The main reason is that in the most cases, the Chinese authorities put more emphasis on the negative risks of the RPM agreements without assessing whether these agreements could also bring out pro-competitive effects on the market. Once the authorities established the existence of the RPM agreement and such agreement had actually or potential anti-competitive effect, then such agreement was prohibited. Even though Article 15 AML explicitly offers the possibility that RPM agreements could be justified under this provision, the authorities of China did not assess whether the particular RPM agreement concerned could fulfil
the requirements and, thus, benefit from the justification. Only in one latest decision in 2016, the authorities of China explicitly referred to Article 15 AML and claimed that the undertaking made no efficiency defence under this provision41.
Such legal approach adopted by the Chinese authorities is different from and stricter than that of the Chinese courts and the EU, because the latter two are both open to assess the efficiencies which could be brought up and balance the pro- and anti-competitive effects of the RPM agreements.
3.2.2 The negative presumption of the RPM agreements under the EU competition law
Under the EU competition law, there is a presumption that the RPM agreement could bring about severe negative effect. As consequence, the RPM is considered as restriction of competition by object and characterized as hard-core restraint. This approach is endorsed by the Commission and case law of the CJEU. In the case of Nathan, the Commission considered that fixing a resale price level distorts price trends on the market and had the object of restricting competition42.The JEU, in the case of Binon, also held that provisions which fix the prices to be observed in contracts with third parties constituted, of themselves, a restriction on competition within the meaning of Article 101 (1) TFEU43. Once it is established that the RPM agreement is entered into by certain undertaking and such agreement has appreciable effect on intra-community trade, then that RPM agreement falls within the scope of Article 101(1) TFEU. Furthermore, even though the RPM agreement could be justified under Article 101(3) TFEU, it is also presumed that it is unlikely to fulfill all the requirements under this provision. Current case law and practice in the EU towards RPM can only be understood from the perspective of the application of the hardcore approach based on these two rebuttable presumptions44.
41 See note 27.
42 COMP.F.1/36.516 — Nathan-Bricolux (2001/135/EC)
43 Case 234/83 Finanzgericht München – Germany [1985] ECR 2015, para 44.
Such presumption is based on the economic theory that the that such agreement could cause serious negative effect on the competition condition on the relevant market. There are basically three kinds of anti-competitive effects that could be brought about by the RPM agreements. Firstly, the immediate and direct effect of RPM agreement is price increase, because the distributors are prohibited to lower the resale price for a particular brand. Secondly, the RPM agreement could be used as a tool to facilitate collusion between different manufacturers or between different distributors. When the manufacture market is characterized by a tight oligopoly, the adoption of the RPM agreement will help to enhance the price transparency and, thus, facilitating the collusion between different manufacturers. Collusion at the distribution level happens when distributors that are powerful, have important bargaining strength, or have a strong network, may compel or convince one or more suppliers to maintain resale prices over the competitive level and to help them succeed or stabilize a collusive equilibrium45. Thirdly, RPM agreements may also lead to foreclosure effect when
manufacturers afford considerable profit margins to their distributors in order to incentivize them to favor their brands instead of the other competitors’ brands46.
However, such dual-level presumption does not exist in China. In the case of Johnson&Johnson, the court held that the plaintiff who filed an action under Articles 13 and 14 under AML must not only establish the existence of the RPM, but it also had to prove that such an agreement had the anti-competitive effect on the market47. As for the negative effect analysis, the Chinese enforcement authorities and the national courts focused on both intra-brand and inter-brands competitive effects of the RPM agreement. In regard to the intra-brand competition effect, the National Development and Reform Commission in the case of Bausch & Lomb held that the RPM agreement adopted by
maintenance.
45 Dr Nikolaos E. Zevgolis, Resale price maintenance (RPM) in European competition law: legal certainty versus
economic theory?, European Competition Law Review, E.C.L.R. 2013, 34(1), 25-32. See the example of publishers VBVB v Commission (43 & 63/82) [1984] E.C.R. 19; [1985] 1 C.M.L.R. 27.
46 See note 15, 1393. 47 See note 7.
the contact lenses manufacturers deprive their distributors’ freedom to set the resale price of the products, thus, eliminating the price competition between different distributors within one particular brand. This would directly lead to price increase and prevent the consumers to benefit from the lower product price48.
On the other hand, according to the judgement of Johnson&Johnson49, the Chinese court placed more emphasis on the inter-brands competition. The court held that in order to assess whether the RPM agreement had negative effect, it was necessary to consider whether there was sufficient (inter-brands) competition on the relevant market and whether the undertaking concerned had strong market power. If there was sufficient inter-brands competition on the relevant market, the consumers would be able to choose the substitutable products from other brands without being hurt by the high price brought about by the RPM agreement. Furthermore, the court maintained that if the undertaking concerned did not possess considerable market power, it could not cause negative effect on the relevant market. Even if such negative effect exists, the effect would be temporary and could be spontaneously corrected by the market. Such analysis is endorsed by the Chinese authorities’ decision. In the decision of Maotai white spirit case50, the authority held that the undertaking concerned, Maotai, had the leading status in the Chinese white wine market. If such powerful undertaking adopted an RPM agreement, its competitors, namely the other white wine breweries, would follow this pattern to adopt the RPM agreement as well. Such agreements may prevent or eliminate the price competition between the undertakings from different brands. In the decision of Medtronic case51, the authority held that since there is already no sufficient inter-brand competition on the relevant market, the RPM agreement will further undermine the competition conditions of the market.
The differences which exist between EU and Chinese law in regard to the presence of
48 <http://www.ndrc.gov.cn/xwzx/xwfb/201405/t20140529_613554.html>. accessed in March 23rd 2017. 49 See note 7.
50 < http://finance.sina.com.cn/focus/mtwlyldbf/>, accessed in March 23rd 2017. 51 See note 27.
negative presumption concerning RPM agreements impact the burden of proof considerations in RPM cases in those two systems. Under EU competition law, the RPM agreement is presumed to be illegal unless the undertaking concerned could provide credible evidence of efficiency benefits. On the contrary, according to Article 13 and 14 of Chinese anti-monopoly law, the RPM agreements are presumed to be legal unless the authorities or plaintiffs could establish that the anti-competitive effects are brought about by the RPM agreements.
3.2.3 The absent of ‘indispensability’ requirement in the justification conditions of Chinese anti-monopoly law
According to Article 101(3) TFEU, undertakings which conclude RPM agreements and wish to seek justification under this provision must fulfill four cumulative conditions. Firstly, the RPM agreement must contribute to improve the production or distribution of goods or to promote technical or economic progress. The parties have to explain how the RPM agreement allowing the undertaking to perform a particular task with higher added value for consumers. Moreover, there must be a causal link between the product or distribution conditions and the claimed efficiencies52. Secondly, the RPM agreement could allow consumers a fair share of the resulting benefit. Thirdly, the RPM agreement must be indispensable to the attainment of the efficiencies. Fourthly, the RPM agreement does not afford the undertakings the possibility of eliminating competition in substantial part of the products in question53.
Similar to the EU competition law, the Chinese anti-trust law also offers the undertakings concerned the possibility to seek exemption from the application of Article 14 AML which explicitly prohibits the RPM agreements. Under Article 15 AML, the RPM agreement shall be exempted if the undertaking could prove that such
52 Doris Hildebrand, Economic Analyses of Vertical Agreements — A Self-Assessment, International Competition
Law Series, Volume 17 (Kluwer Law International; Kluwer Law International 2005) pp. 84.
agreement meets three cumulative conditions: (1) the agreement is entered into for the legitimate objectives; (2) the agreement will not substantially restrict competition in the relevant market; and (3) the agreement will enable the consumer to share the benefits derived from the agreement.
It is clear that these three conditions under Article 15 AML are almost the same as the conditions listed under Article 101(3) TFEU. However, the Chinese anti-trust law does not impose the third condition listed in Article 101(3) TFEU, namely, the “indispensability” requirement.
3.2.4 The role of non-economic factors in the process of justification of RPM agreements under EU and Chinese law
As previous mentioned, the RPM agreement which is prohibited by Article 101(1) TFEU could be justified under Article 101(3) TFEU if such agreement could generate efficiency that outweighs its negative consequences in the relevant market. However, there is considerable discussion about the scope of the efficiencies that could be taken into account under Article 101(3) TFEU.
A narrow view of Article 101(3) TFEU is that only economic efficiencies that would be brought about by the RPM agreement are permitted to be considered when assessing whether the particular RPM agreement could be justified. Because the Article 101(3) Guidelines explicitly stipulates that the types of efficiencies listed in Article 101(3) are broad categories which are intended to cover all objective ‘economic efficiencies’.54 On the contrary, a broader view of Article 101(3) TFEU allows non-economic policies to be taken into account under this provision55. For example, the Court in the judgement
of Metro v. Commission held that employment came within the framework of the objectives to which reference may be had pursuant to Article 101(3), since it improves
54 Article 101(3) guidelines, para 59. 55 See note 30, page 166.
the general condition of production, especially when market conditions are unfavorable56. In a similar case, Ford/Volkswagen, the Commission took into consideration the fact that the joint-venture agreement concerned constituted the largest ever foreign investment in Portugal and was estimated to create 5000 to 10 000 jobs and this was an element which the Commission had taken into account57. Besides the
policies of employment and foreign investment, environment improvement and sustainable economic development is also assessed by the Commission. In the case of ARA, the Commission stated that the partner agreement to collect and recycle household packaging in Australia allowed the contracting parties to undertake the long-term planning and organization of their services and allowed considerable economies of scale and scope to be achieved. Such agreement not only contributed to improving production and promoting technical and economic progress, but also aimed at preventing and mitigating the impact of packaging waste on the environment and thereby securing a high level of environmental protection58. In this case, the environmental progress is regarded as the complementary factors under the efficiency analysis.
Article 15 of the Chinese anti-monopoly law also offers the possibility for the RPM agreement to be justified if it was entered into for the purpose of legislative objectives. This provision lists six efficiencies which could be considered during the assessment whether particular PRM agreement could be justified. The first three are economic factors: (1) improving techniques, or researching and developing new products; (2) upgrading product quality, reducing costs, improving efficiency, unifying product specifications and standards or realizing job specialization; and (3) improving operational efficiency and enhancing the competitiveness of small and medium-sized enterprises. The last three are non-economic factors: (1) realizing public welfare such as conserving energy, protecting the environment, and providing disaster relief; (2)
56 Case 26/76 [1977] ECR 1875, para 43.
57 Commission decision in Ford/Volkswagen, OJ [1993] L 20/14, para 36.
mitigating the severe decrease of sales volume or excessive overstock during economic recessions; and (3) protecting legitimate interests in foreign trade and economic cooperation. These factors reflect the balancing between the economic efficiency and the other important and equivalent policies, especially those concerning the sustainable economic development and public concerns. It is also worthwhile to notice that the scope of benefits which are assessed under Article 15 AML is not closed, because the law and regulations of the State Council has the power to stipulates other circumstances that could be considered for the determination whether the restrictive agreements could be justified.
It, therefore, could be concluded that the EU and China both recognize that the economic efficiencies should be examined during the justification assessment of the restrictive agreement. On the other hand, whether the non-economic factors could be taken into account under Article 101(3) TFEU is still under discussion. Contrary to that, China has a clearer attitude that other important policies besides the economic efficiencies are also relevant during the justification analysis.
3.3 Interim conclusion
In conclusion, there are two main similarities regarding the RPM test rules between the EU and China. These similarities are: (i) the EU and China both consider restriction on competition as the prerequisite for the regulation of the RPM agreements; and (ii) the EU and Chinese courts are both open to assess the pro-competitive effect of the RPM agreement. The divergence of the RPM regulation exists in four aspects: (i) the Chinese authority did not assess the pro-competitive effects of the RPM agreement in their decisions; (ii) the negative presumption of the RPM agreements under the EU competition law does not exist in China; (iii) there is no ‘indispensability’ requirement in the justification conditions of Chinese anti-monopoly law; and (iv) China is more willing to consider the non-economic factors in the process of justification.
4. The reasons for the existence of the similarities and differences in the application of the RPM test rules in the EU and China
It is worthwhile to note that competition policy cannot be pursued in isolation, as an end in itself, without reference to the legal, economic, political, and social context.59
Thus, the comparison analysis undertaken by this thesis also embraces the assessment of the legal, social and economic contexts in which two of those systems are established.
4.1 The reasons for the existence of the similarities in the application of the RPM test rules in the EU and China
There are two main similarities of the RPM test rules between the EU and China. Firstly, the two legal systems both consider ‘restriction on competition’ as the prerequisite for the regulation of the RPM agreements. Secondly, the EU and Chinese courts are both willing to balance the positive and negative effects of the RPM agreement.
These similarities reflect the same aim of the EU competition law and Chinese anti-monopoly law and that is to prevent and curtail monopolistic practices, protect the principle of fair competition and promote economic efficiency60.Only when the undertakings’ behavior undermines the competitive structure of the market, it is necessary for the authorities to intervene and regulate such behavior. The EU and China both recognize that RPM agreements could contribute to efficiency improvement under certainty conditions. It seems wise for a competition authority not to forfeit too easily the benefit for consumers of a direct price decrease and thus to critically review possible procompetitive or efficiency claims in relation to RPM61.
59 See note 7.
60 Case T-Mobile, the Advocate General pointed out in the T-Mobile judgement that Article 81 EC (Article 101
TFEU), like the other competition rules of the Treaty, is designed to protect not only the immediate interests of individual competitors or consumers but also to protect the structure of the market and thus competition as such. Article 1 of the Chinese Anti-Monopoly law provides that ‘this law is enacted for the purposes of preventing and prohibiting monopoly conduct, safeguarding fair market competition, improving efficiency of economic operations, protecting consumers and the public interest, and promoting the healthy development of the socialist market economy’.
4.2 The reasons for the differences in the application of the RPM test rules in the EU and China
4.2.1 The reasons for disregard of pro-competitive effects of RPM agreements by Chinese authorities
One of the most important differences concerning the RPM test rules between the EU and China is that the Chinese authorities did not assess pro-competitive effects of the RPM agreements in most of their cases.
One possible reason for this is that the Chinese authorities may not realize that RPM agreements could also bring about efficiencies. Although Article 15 AML explicitly provides the possibility that anti-monopoly agreements, including RPM, could be exempted, the Chinese authorities rarely refer to this provision in its decisions. This implies that the Chinese authorities may not fully understand the function of Article 15 AML in regard to the RPM regulation. Since the Chinese anti-monopoly law entered into force just nine years ago, the competition process and associated values appear less well embedded and the Chinese authorities do not have enough experience in the application of this competition rules. As consequence, they may find it difficult to apply the economic analysis in the anti-monopoly cases.
The other possible reason is that the Chinese authorities are more sensitive about price increase and they have been focusing on the price regulation since the adoption of the Price Law of China in 1997. This law stipulates that a business operator may not collude with others to manipulate the market price, thus harming the lawful rights and interests of other business operators or consumers62. Any business operator who colludes to manipulate market prices either may be required to pay restitution, or may have any
62 Pricing Law of China, Art. 14, para. 1 (1997). [law yearbook of China (1998) 272-75 (P.R.C), available at
illegal gains confiscated63.
The third reason is that the RPM agreements are always related to widely used consumer goods in China, for example, white wine, milk powder, contact lenses, medical products. The price increase of these products will cause huge public discontent and, thus, the consumers will push the government to adopt a strict approach to regulate those RPM agreements. In some circumstances, the Chinese authorities appear more concerned with seeking consent from the public, than with economics.64
4.2.2 The reasons for the difference in the analysis of the concept of ‘restriction on competition’ between the EU and China
The second difference in regard to the RPM test rules between the EU and China is that while the RPM agreements are presumed to be restrictive of competition by object under Article 101(1) TFEU, according to Chinese law, they are not always seen as being restrictive of competition unless the restrictive effects could be established by the authorities or plaintiffs
The negative presumption of the RPM agreements under the EU competition law is based on the economic theories that such agreements could cause severe negative consequences and being not able to bring about offsetting benefits. The EU competition law considers the price competition and intra-brand competition as very important factors in competition progress. On the contrary, the Chinese courts and authorities place more emphasis on the inter-brands competition. If there is sufficient inter-brands competition, the RPM agreements cannot succeed in raising prices above the competitive level, as customers would automatically switch to one of the lower-priced perfect substitutes which are available65. As consequence, it is necessary to examine
63 Ibid, Art. 40. 64 See note 11. 65 See note 18.
the possible negative effects of the RPM agreements under the specific circumstances case by case. The Chinese authorities and courts consider the market power of the undertaking concerned, the entry barrier and brand loyalty as important economic factors for the anti-competitive effect assessment.
It could be concluded that the different attitudes of the EU and China towards the anti-competitive effect of RPM agreements are based on the different understandings of the inter-bands and intra-brand competitive effect which the RPM agreements could bring about.
4.2.3 The reason for the difference in the criteria for justification of RPM agreements between the EU and China
As aforementioned, the difference in justification of RPM agreements between the EU and China is that there is no ‘indispensability’ requirement under Chinese anti-monopoly law which makes it easier for RPM agreements to be justified under Chinese law.
The possible reason for this divergence is that the Chinese anti-monopoly law may not realize the role of the ‘indispensability’ requirement which prohibits restrictions unnecessary to achieve the efficiencies. However, some scholars in China have claimed that the ‘indispensability’ requirement is so important that even though it is not stipulated in Article 15 of Chinese anti-monopoly law, the national courts or the enforcement authorities should take this requirement into consideration during the justification assessment66.
4.2.4 The reasons for the difference concerning the scope of justification of RPM agreements between the EU and China
Even though both the EU competition law and Chinese anti-monopoly law stipulate that the RPM agreement could be justified under certain conditions, the scope of the benefits which could be taken into consideration is different under two of these legal systems. Whether non-economic factors could be taken into account under Article 101(3) TFEU is still under discussion. Contrary to that, China has a clearer attitude that other important policies besides the economic efficiencies are also relevant during the justification analysis.
One of the possible reason for this divergence may be the pluralistic nature of the legislation aim of the Chinese monopoly law. Article 1 of the Chinese anti-monopoly law explicitly stipulates that, besides the efficiency improvement, this law also aims at protecting consumers and public interest, and promoting the development of the socialist market economy67. Moreover, the Chinese anti-monopoly law admits the possibility that the other non-economic policy, for example, the public interest would be in conflict with economic considerations and, because of that, it is necessary to balance those different policy objectives.
The other possible reason is that the EU is concerned that the Member States are not well placed to balance the Article 101(1) TFEU requirements against a broad range of EU policy exceptions under Article 101(3) TFEU. Since the adoption of Regulation 1/2003, national competition authorities and national courts could also make decisions under Article 101(3) TFEU. However, these institutions, unlike the Commission, may not be in a good position to consider other EU policies and, consequently, they are bound to apply narrower interpretation of the grounds for exceptions under Article 101(3) TFEU than the EU authorities68. However, such concern does not exist in China,
since the national government is well-placed to balance different policies within the territory of China.
67 Article 1 AML 68 See note 30, page 169.
